Carbon Taxes Require Carbon Tariffs

“As the U.S. takes steps to make domestic polluters bear the full cost of their carbon pollution, the Biden Administration will impose carbon adjustment fees or quotas on carbon-intensive goods from countries that are failing to meet their climate and environmental obligations.” (Biden Climate Plan, Part III)

“If you [China] continue, you will suffer severe consequences because the rest of the world will impose tariffs on everything you’re selling.” (Joe Biden, February 19, 2020)

Make no mistake: when it comes to climate policy, domestic taxes and international tariffs (“border adjustments”) are two sides of the same coin. What Presidential candidate Joe Biden said before the Las Vegas caucus (above) is embedded in the international plank of his Climate Plan.

“Climate change is a global challenge that requires decisive action from every country around the world,” Biden’s climate plank begins.

[Biden] will not only recommit the United States to the Paris Agreement on climate change – he will go much further than that. He will lead an effort to get every major country to ramp up the ambition of their domestic climate targets. He will make sure those commitments are transparent and enforceable, and stop countries from cheating by using America’s economic leverage and power of example. He will fully integrate climate change into our foreign policy and national security strategies, as well as our approach to trade.

America is responsible for only about 15 percent of global greenhouse gas (GHG) emissions. So how can the U.S. ensure that the other sovereign countries (approximately 195), and none more important than China and India, engage in “transparent” and “enforceable” greenhouse gas emission reductions? It is contained in the above’s “fully integrate climate change into … our approach to trade.”

The Biden Climate Plan is quiet on the two obvious policy choices of carbon taxation and cap-and-trade. But pricing CO₂ and other GHGs is implicit—what will become explicit once in office. The hint is there:

Biden believes the Green New Deal is a crucial framework for meeting the climate challenges we face…. [T]he United States urgently needs to embrace greater ambition on an epic scale to meet the scope of this challenge….

Think CO₂ pricing when Biden talks about “assur[ing] the U.S. achieves a 100% clean energy economy and reaches net-zero emissions no later than 2050.” Upon election,

He will demand that Congress enacts legislation in the first year of his presidency that: 1) establishes an enforcement mechanism that includes milestone targets no later than the end of his first term in 2025, 2) makes a historic investment in clean energy and climate research and innovation, 3) incentivizes the rapid deployment of clean energy innovations across the economy, especially in communities most impacted by climate change.

Deep into his 10,000-word climate plan, Biden’s approach becomes more explicit:

As the U.S. takes steps to make domestic polluters bear the full cost of their carbon pollution, the Biden Administration will impose carbon adjustment fees or quotas on carbon-intensive goods from countries that are failing to meet their climate and environmental obligations. This will ensure that American workers and their employers are not at a competitive disadvantage and simultaneously encourage other nations to raise their climate ambitions. Biden will also condition future trade agreements on partners’ commitments to meet their enhanced Paris climate targets.

China is called out individually. “Biden will not allow other nations, including China, to game the system by becoming destination economies for polluters, undermining our climate efforts and exploiting American workers and businesses.”

As the U.S. takes steps to make domestic polluters bear the full cost of their carbon pollution, the Biden Administration will impose carbon adjustment fees or quotas on carbon-intensive goods from countries that are failing to meet their climate and environmental obligations.… Biden will also condition future trade agreements on partners’ commitments to meet their enhanced Paris climate targets.

Four specific initiatives counter China’s “massive Belt and Road Initiative,” whereby Beijing liberally finances coal projects in other countries.

• Make future bilateral U.S.-China agreements on carbon mitigation – like the 2014 agreement that paved the way for the Paris accord – contingent on China eliminating unjustified export subsidies for coal and other high-emissions technologies and making verifiable progress in reducing the carbon footprint of projects connected to the Belt and Road Initiative.

• Seek a G20 commitment to end all export finance subsidies of high-carbon projects, building on past commitments from the G7 and multilateral export finance institutions to eliminate financing for coal in all but the poorest countries.

• With our partners, offer Belt and Road Initiative countries alternative sources of development financing for lower-carbon energy investments.

• Reform the International Monetary Fund and regional development bank standards on debt repayment priorities for development projects. The U.S. will lead like-minded nations to establish rules that take unsustainable climate and debt costs – such as those imposed by self-interested Chinese projects – into account in prioritizing who gets paid under international debt forbearance. Projects with high carbon impact and high debt costs will go to the end of the line, making them higher risk and more costly.

Still more, Biden proposes to “name and shame global climate outlaws:”

The U.S. Department of State publishes rankings of country’s records on human trafficking and human rights. A Biden Administration will institute a new Global Climate Change Report to hold countries to account for meeting, or failing to meet, their Paris commitments and for other steps that promote or undermine global climate solutions.

Conclusion

The above national/international Climate Plan is hardly unique to one Presidential candidate. All serious domestic GHG mitigation proposals must deal with international emissions. “You can’t have a regulated economy doing more, and a less regulated economy doing less without some sort of trade equalization,” one analyst explained. “Tariffs are very likely to happen if differential compliance with the Paris agreement continues, which seems likely.”

The necessity of more regulation to buttress initial regulation is a tenet of political economy, and climate policy is no exception. The free-market choice of pro-consumer, taxpayer-neutral energy policy, coupled with entrepreneurial weather/climate response, is an end in itself. A carbon tax, contrarily, is the beginning of a long road to serfdom.

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